No one likes to think about divorce when Valentine’s love is in the air. However, In America, between 40 and 50 percent of marriages end in divorce. Besides the emotional toll of separation, there can be financial impacts too. Below are some important things to know about debt and divorce.
A divorce decree does not automatically sever your finances
If a married couple incurs joint debt (such as a credit card, car loan, or mortgage), divorce does not separate those accounts. Divorce is not listed on a credit report and creditors are not informed of a divorce when it is filed. This means that you will have to plan with your ex-spouse how to divide the debt. Leaving the debt joint means that if one party decides not to pay, the other will be held liable.
You could be liable for your spouse’s debt
Depending on the state you live in, you could be liable for up to 50% of your spouse’s debt. There are two major types of approaches states take to joint marital debt: community property and equitable distribution. Community Property states include:
- New Mexico
In a community property state, both parties are liable for any debt accumulated during the marriage. This is regardless of whose name was on each individual account. The debt is split 50/50 between both spouses regardless of ability to pay. If you live in a community property state, it is important to pay off as much joint debt as possible. You will also want to make provisions in your divorce decree that state which individual spouse is responsible for which debt.
The remaining 41 states are equitable distribution states, which means a judge determines which spouse receives which assets and debts. Individual debts remain the responsibility of the account holder. It is still important in this case to sever joint accounts through arrangements with the creditor or refinancing.
Consider your new financial situation
After a divorce, you may find yourself having to get by on one income instead of two. This can mean you will need to adjust your budget accordingly. You may have to downsize your home or trade in your car for something more affordable. This is also the time to look at your spending and determine if you will be able to pay the debts that have been assigned to you.
If you need assistance with tackling debt after divorce or would like a financial review session to help you establish a new budget, Apprisen can help. Call us at 800-355-2227 or conveniently start the process all online here.